CHINA DONGXIANG (03818) has issued an announcement detailing a comprehensive evaluation of available options to address ongoing uncertainties regarding the recoverability of subscription loans. After discussions with sellers, the company, GSL, and each seller entered into a settlement agreement on July 24, 2026, to settle the outstanding amounts of the seller subscription loans.

Under the settlement terms, the parties agreed on the following: (i) The company will repurchase a total of 256 million repurchase shares at a price of HK$0.285 per share, representing approximately 4.34% of the company's total issued share capital as of the announcement date (the Share Repurchase); (ii) The consideration payable to each seller for the share repurchase and any outstanding retained dividend amounts will be offset against the equivalent outstanding balance of the corresponding seller subscription loan owed by that seller to GSL (the Offset); (iii) GSL will waive any remaining balance owed by each seller on the corresponding seller subscription loan after the offset (the Loan Waiver); and (iv) Solely in relation to Mr. Zhang, Mr. Zhang must pay HK$20 million to the company as compensation (Zhang Zhiyong Compensation).

For the share repurchase, the company will repurchase 256 million repurchase shares from sellers at a total consideration of approximately HK$72.99 million, calculated as the repurchase price of HK$0.285 per share multiplied by the total number of repurchase shares.

When deciding to proceed with the settlement and determining its terms, the board considered several factors: (i) The company's share incentive arrangements, including subscription loans, were designed for recruiting, retaining, and motivating borrowers. The company did not structure these as speculative tools linked to share price or independent financing transactions, nor as a mechanism to penalize borrowers when share prices decline. As part of the share incentive arrangement, borrowers were expected to realize gains and repay subscription loans by selling charged shares when share prices appreciated; (ii) The board's assessment of increased uncertainty regarding subscription loan recoverability, considering that (a) subscription loans are due within the next two years, (b) borrowers may face potential challenges in repaying as they may need to liquidate personal assets or deplete savings, creating financial hardship, and (c) the depressed value of charged shares. Based on this assessment, the group recognized an impairment loss of approximately RMB 181.7 million on loans receivable for the fiscal year ending March 31, 2026; (iii) If defaults occur under subscription loans, enforcing security on charged shares would require selling a large number of shares in the market within a limited timeframe, potentially putting downward pressure on share prices and adversely affecting shareholder value. Legal action against defaulting borrowers could involve (a) adverse consequences, including potentially requiring borrowers, who are current or former employees, to sell personal assets or deplete savings, causing financial challenges. This outcome would contradict the spirit of share incentive arrangements and could significantly damage employee morale, trust, and commitment, as well as cause reputational harm to the company, and (b) high legal costs and management time; (iv) Sellers (a) will incur significant losses from the settlement, as 10% of the total subscription price and acquisition costs (where applicable) for their respective charged shares were funded from their own resources and will be irrecoverable, and (b) have received no returns from the charged shares to date, as dividends received were primarily used for ongoing interest payments and partial principal repayment under subscription loans; (v) The subscription loans did not result in any actual cash outflow for the group because (a) all loan proceeds were paid directly to the company to settle subscription prices, (b) all shares subscribed for or purchased by sellers were charged to and held in security accounts controlled by the group, and (c) since the subscription date, no seller has sold any charged shares; and (vi) The share repurchase is also expected not to result in any actual cash outflow for the group, as the consideration payable to each seller under the share repurchase will be fully offset against the outstanding balance of the corresponding seller subscription loan.

After a thorough evaluation of the relative merits of (a) maintaining the subscription loans for an additional period of approximately two years until maturity versus (b) settling now, and specifically considering the Zhang Zhiyong Compensation successfully negotiated with Mr. Zhang, the settlement is deemed more certain and commercially reasonable. Proceeding now allows the company to lock in a definite and tangible recovery amount immediately, eliminating credit, recovery, and enforcement risks that would persist over the remaining two-year period, and enabling the Zhang Zhiyong Compensation proceeds to be used immediately for working capital purposes. In contrast, holding the subscription loans until maturity would expose the company to ongoing uncertainty regarding ultimate repayment, with no corresponding benefits to justify assuming that risk.